Tiffany and Co. (TIF) has defied the recent malaise in retail stocks, reporting in-line revenues while guiding fiscal year 2018 to higher ground. The surprising results triggered a healthy buy-the-news reaction, lifting the jeweler to a 20-month high while setting a demographic dividing line between brick and mortar retailers, with an affluent clientele contributing to stronger balance sheets.
Competitor Signet Jewelers Ltd. (SIG) gained ground last week after a much weaker report that followed a January earnings preannouncement, triggered by sharply declining year-over-year holiday comps. That bearish news triggered two months of intense selling pressure, dropping the stock to a three-year low, with the post-earnings relief rally highlighting an intensely oversold technical condition.
TIF Weekly Chart (2007-2017)
The stock gained just 12-points between the multi-year high posted on the last day of the old millennium and the 2007 bull market high at $57.34. Sharp price swings between those levels kept shareholders off balance for more than seven years, with the company acting as a proxy for shopping habits of the rich and famous. It turned sharply lower into 2008 and plunged with world markets during the economic collapse, bottoming out at an 11-year low in the mid-teens.
The subsequent recovery wave completed a 100% round trip into the prior high at the end of 2010 and broke out, lifting into the mid-80s where the rally ended in July 2011. A 2012 test at new support attracted committed buyers, yielding a strong bounce that reached new highs at the end of 2013. This rally leg continued into December 2014’s all-time high at $110.60 and reversed into an intermediate correction.
It sold off throughout 2015 and into the second quarter of 2016, finally coming to rest at $56.99 after the Brexit referendum. The subsequent bounce stalled at the .618 Fibonacci selloff retracement level in February 2017, giving way to a pullback that’s found enthusiastic buying interest after this week’s earnings report. The stock has now lifted above last month’s high and entered the massive January 2015 gap between $93 and $103, which stands as a major barrier before rising price can test the 2014 bull market high.
SIG Weekly Chart (2007–2017)
Signet matched its rival’s mixed performance in the last decade, gaining ground through most of the Dot.com bear market and then stalling out in the upper-30s in 2002. It rallied above that level in 2004 and dropped into a holding pattern until a 2006 breakout added just six points into the 2007 May top at $49.00. The subsequent decline did extensive technical damage, dropping the stock more than 45-points while forcing a reverse split to maintain liquidity.
It returned to the 2007 high in July 2011 and dropped into broad consolidation that completed a multi-year cup and handle pattern, ahead of a 2012 breakout that caught fire, lifting price into a long series of new highs. The rally finally ended at the November 2015 all-time high print at $152.27 and rolled into a persistent correction that’s carved a continuous series of lower highs and lower lows for the last 16-months.
The decline reached the .618 Fibonacci retracement of the 2009 to 2015 uptrend in January 2017, marking a natural level for sellers to step aside and allow value buyers to open new long positions. The buy the news reaction after last week’s bearish earnings confirms long-term oversold technical readings that now favor continued upside into the 50% retracement in the upper-70s.
The Bottom Line
The nation’s largest publically traded jewelers are attracting buying interest in a tough retail environment, but for different reasons. Tiffany’s is gaining ground due to surprisingly strong performance while Signet is adding points because selling pressure has been exhausted, following a long downtrend. Both stocks should continue higher in the second quarter.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication. >